Temasek to Buy 10% of High-Frequency Trading Firm Virtu Financial

Bradley Hope was ahead of competitors with the news that Temasek Holdings, Singapore’s state investment firm, had agreed to acquire a 10% stake in Virtu Financial LLC for about $200 million. This investment values the high-frequency trading firm at roughly $2 billion, according to sources.

Temasek Holdings Pte. Ltd., Singapore’s state investment firm, agreed to buy 10% of high-frequency trading firm Virtu Financial LLC for about $200 million, according to people familiar with the matter.

The $2 billion valuation is at the lower end of the range Virtu expected to see with a proposed initial public offering earlier this year, the people said.

Virtu postponed the IPO in April amid market turbulence and increased regulatory scrutiny of high-frequency trading and hasn’t said when it might proceed with the offering.

Temasek will acquire the shares in Virtu from private-equity firm Silver Lake Partners LLC, which bought a roughly 20% stake in Virtu in 2011 in connection with its purchase of Madison Tyler Holdings LLC, another high-frequency trading firm.

Temasek is also an investor in Silver Lake, according to the company.

The deal with Temasek will allow Silver Lake to cash out of part of its Virtu investment without an IPO.

Doug Cifu, chief executive officer of Virtu, declined to comment on whether the company would revive its IPO plans next year but said the investment was a “vote of confidence” in Virtu.

Virtu is one of the biggest electronic market makers in the world, trading in more than 200 markets using high-speed computers programmed to continuously analyze prices on stocks, futures, currencies and other assets in fractions of a second. The firm seeks to capture the difference between buy and sell offers on hundreds of thousands of trades a day.

Founded by former New York Mercantile Exchange Chairman Vincent Viola, it has offices in New York, Austin, Texas, Dublin and Singapore.

Boon Sim, head of Temasek’s markets group and president for the Americas, said his company sees Virtu as a good long-term investment in a world where electronic trading is increasingly dominant.

“The company has a deep comparative advantage versus more traditional players,” he said in an interview, adding that the firm generates cash in both up and down markets.

Temasek also expects Asia will provide a “growth opportunity” as its markets become more electronic in the next five to 10 years, said Mr. Sim, who was previously the global head of mergers and acquisitions at Credit Suisse in New York.

“When they pulled the IPO because of the controversy around high-frequency trading, we weren’t troubled by it,” he said. “We’re longer-term investors so short-term noise has no impact on us.”

While investments in North America and Europe make up only about 14% of its 223 billion Singapore dollars (US$170 billion) portfolio, Temasek has been ramping up its interest in the U.S.

The firm, established in 1974 to manage assets previously held by the government, opened a New York office in June and has been reviewing more deal opportunities in North America, according to Mr. Sim.

Earlier this year, it invested $500 million in the life-sciences company Thermo Fisher Scientific Inc. Last year, Temasek took a 10% stake in the financial-data company Markit Ltd.

High-frequency trading, where firms use computers and high-speed communications networks to zip in and out of the markets and make tiny profits on millions of trades, has come under increasing scrutiny from regulators this year.

Among the areas of inquiry are whether such firms are able to unfairly take advantage of other investors, such as mutual funds, using special data feeds and servers located next to exchange matching engines.

SEC Chairman Mary Jo White earlier this year said she would increase oversight of computer-driven trading.

In a securities filing announcing plans for an IPO earlier this year, Virtu said it had net income of $182.2 million on revenue of $664.5 million in 2013, representing a 108% increase in profit from the year before.

The company had just one losing trading day during the 1,238-trading-day period concluding at the end of December 2013, it said.

Under plans at the time, Virtu was trying to raise between $200 million and $250 million, suggesting a valuation as high as $3 billion, according to people familiar with the matter.

After the investment closes, Silver Lake Partners and Temasek will each own about 10% of the company. Silver Lake will retain its position on the board of directors.

“Virtu has been a terrific investment for Silver Lake, and we look forward to participating in the company’s future growth alongside Temasek as our investment partner,” said Mike Bingle, partner of Silver Lake, in a statement.

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